Suze Orman's quick guide to the language every investor should know.
Companies with capitalization of less than $1 billion.
Companies whose capitalization runs between $1 and $12 billion.
Companies with capitalization of $12 billion or more.
A fund run by a manager or team of managers who decide what to buy and sell with all the money investors have deposited in the fund. In a sense, you're investing in the manager who's in charge of the fund. Managed funds typically invest in growth (stocks of companies whose business is growing rapidly) or value (stocks that are modestly priced relative to companies' underlying assets, such as real estate).
A mutual fund that buys shares of all the companies in the entire index it is tracking, for example the Standard & Poor's 500 Index, NASDAQ, and the Wilshire 5000 Total Market Index. Many of the good index funds require a high initial deposit ($3,000) to open an account.
A fund that combines the features of an index fund with those of a stock. When you buy an ETF, you are buying units in a trust that holds stocks in proportion to their weightings in the index the fund is duplicating. Like managed funds, ETFs offer a level of diversification that would be difficult for you to achieve on your own. Unlike most index funds, they do not require a high initial deposit to open an account. If you want, you can buy one share, which can cost you as little as $100.
The charge for running a fund. Managed funds charge fees. Index funds do not, and ETFs have very low fees.
From the June 2002 issue of O, The Oprah Magazine
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